The Perfecting Of Dividend Rights Protection Of Limited Company

To maximize the return of the investment is definitely what shareholders madethrough investment most wish for; while the goal behind a company, a profit entity,is to maximize profits. Those two establish the essence of the double-profit characterof a company. Although it appears that the company and its shareholders have thesame goal and ask for a win-win situation, in fact, conflict of interests exists.Whether to leave more profits with the company for its future development or todistribute more profits to shareholders is always a complex problem.Nowadays, as for limited liability companies in practice, it’s very common thatthe majority shareholders manipulate the shareholders meeting into not adoptingresolutions regarding distributing dividends and abuse the principle of the ‘MajorityRule’, resulting in a fact that the company does not distribute dividends or distributeless dividends for a long time. Also, our current Company Law does not providedirect remedies, which means that the minority shareholders may only seek remediesthrough several indirect ways, such as “compensation arising from abusingshareholders’ rights”(article20),“void or revoked resolutions adopted byshareholders meeting”(article22),“transferring shares”(article72),“dissentshareholders’ rights to demand the repurchase of shares”(article75) and “dissolutionof the company”(article183). Those indirectly ways to seek remedies may not fullyprotect shareholders’ dividend rights and may not fulfill the needs of the minority shareholders because they are time-consuming and they usually incur high litigationcosts.Based on the study of relevant foreign experiences, our law maker shall let thePRC Company Law keep pace with the times and establish a system to protectshareholders’ dividend rights. For instance, our law may introduce the fiduciary dutyof the majority shareholders, confirm the reasonable expectation of the minorityshareholders, release the precondition of dissent shareholders’ applying rights todemand the repurchase of shares, establish a fair evaluation system for share price,introduce legal actions for mandating the distribution of profits, etc.The complex issue explained in this paper is balancing the “corporationautonomy” and the “legislature intervening in the distribution of dividends”. The keyissue studied in this paper is how to build a new and effective system to bring theshareholders’ dividend rights into the legislative protection system. This paper hasfour chapters to explain those issues.The first part of ChapterⅠis the empirical analysis on the typical domestic andforeign cases concerning the perfecting of dividend rights protection of a limitedliability company. In this paper, several typical cases are selected and sorted out toclassify the attitude of the courts on how to solve this problem a. The second part ofChapter Ⅰ further lists several current cases in which the dividend rights ofshareholders of limited liability companies are infringed and seeks out actual causesfor the conflict of interest between the majority shareholders and the minorityshareholders in a limited liability company.Chapter Ⅱ demonstrates the legislative status regarding the dividend rights ofshareholders of a limited liability company, including the disadvantages and practicaldrawbacks of the indirect remedies for dividend rights provided by the current PRCCompany Law, especially the fact that the relevant regulations are simple andoutdated. Chapter Ⅱ also includes the explanations of relevant basic theories andkey terms, such as “share interest”,“concrete dividend rights”,“abstractdividend rights”, which are key terms in theories of dividend rights, thus creating atheory basis for the following improved theory. Chapter Ⅲ introduces one resolution: introduce the fiduciary duty of themajority shareholders and improve the dissent shareholders’rights to demand therepurchase of shares, thus resolving the conflict of interest between the majorityshareholders and the minority shareholders. On the one hand, on the basis of theanalysis on the fiduciary duty in Anglo-American law system and the one in the civillaw system, recommends the specified standards for the fiduciary duty in China. Onthe other hand, this Chapter suggests improving the system for the dissentshareholders to realize their rights to demand the repurchase of shares, releasing thepreconditions for applying that right, and creating fair evaluation system for shareprice.Chapter Ⅳ introduces another resolution: create a legal action for mandatingthe distribution of profits, which can be the most effective legitimate way to dealwith the infringement to the concrete dividend rights. This Chapter demonstrates thetheory basis for the legal action and how to establish a specific system for the legalaction. On the basis of studying the relevant cases in the Anglo-American lawsystem, cases in the Civil law system and the current situations in China, thisChapter demonstrates the necessity and practicability for our Company Law tointroduce the legal action and establishes the actual design for creating such a systemin the “entity requirement” and “procedure requirements” step by step.